Reflections of a Consumer Bankruptcy Attorney
I have assisted thousands of Nebraska and Iowa citizens file bankruptcy since 1983 when 348,880 bankruptcy cases were filed, 81.78% were consumers. Bankruptcies broke a million in 1996 and two million in 2005. In 2013, 1.1 million were filed, 96.61% were consumer cases. The Chapter 7 filing fee rose from $60 to $335.
American households are like a business. Selling labor for wages, receiving pensions, disability and Social Security is income, like sales and investment income. Household expenses are overhead. Family and business budgets yield a surplus, profits, are balanced, or upside down, sometimes called “negative income shocks.”
Economic distress and insolvency lead to Bankruptcy Court. The early 1980s, 90s, and 2001 recessions came and went. The Great Recession of 2007 with unprecedented foreclosures, plant layoffs and closings, swelled the number of bankruptcy filings.
Poverty, over extended financial liabilities, consumer vulnerability and insolvency are endemic personal and national problems historically addressed by Depression era New Deal legislation, President Johnson’s Great Society, and the pioneering analysis of Michael Harrington’s The Other America (1962), Elizabeth Warren’s, As We Forgive Our Debtors (1989), and Karen Gross’s, Failure and Forgiveness (1997). Income inequality, from poverty to the super wealthy, is pervasive.
Financial disaster is no respecter of age, gender, or ethnicity. The minimum wage, a limited skill and education toolkit, unstable employer, employment turnover, life events, including births, deaths, divorce, health, inadequate or no health insurance, physical and mental disability, and working more than one job attempting to cover financial obligations contribute to vulnerability. Physically and mentally disabled children break the heart and purse of parents and spouses. Widows face reduced household income, but not expenses.
Debtors experience anxiety, depression, and sleepless nights. Bill collectors send dunning letters and make countless calls. Then come lawsuits, generally ignored, resulting in default judgments exposing wages, checking and savings accounts to garnishment. Ignoring debtor’s exams can result in bench arrest warrants.
Financial education and rehabilitation is a long and tenuous haul. Much is beyond the debtor’s control. They do not want to file again. They are not scofflaws who game the system. Decent honest people get overwhelmed by America’s economic system. The Bankruptcy Code cushions economic crisis and give the needy a chance to become productive and financially secure again.
Structural vulnerabilities include last hired, first fired.
Management increases productivity and the bottom line by reorganizing, eliminating top heavy salaries, computerizing, robotizing, and outsourcing. Disappearing higher paying jobs are replaced by lower paying work, underemployment, and working after retirement.
Single women getting sued are maximally stressed. Even if they are collection proof, peace of mind eludes them. A relatively small debt load for one person is overwhelming for another. Thicker skin may weather what thinner skin cannot.
Between debt collectors, raising children, problematic child support, and declining food stamp benefits debtors cry for relief. They cannot afford debt negotiators and don’t have the wherewithal to work out payment plans with creditors. There is no disposable income, other than the once a year income tax refund.
Debtors live from paycheck to overdraft, making ends meet with pay day loans at extraordinary interest rates, indicates an unsustainable economic model. Utility shutoff notices, lawsuits, repossession and foreclosure creates inordinate stress.
Family, friends, and social services agencies provide some assistance. Bankruptcy provides much needed life-saving relief to overwhelming financial stress. Parents, friends, coworkers and even bill collectors suggest bankruptcy relief. Why suffer, get over it, get a start afresh.
The financial plight of women is evident as more women than men file bankruptcy. The advances made by the women’s movement do not provide economic security. Debtors are increasingly filing second or third bankruptcies. Women comprise the majority of repeat filers.
Multi-generation households have returned. Children with children move in with their parents, and parents move in with their children.
Anti-social alcohol, drugs, gambling, and compulsive behavior are insignificant factors in bankruptcy. The crux is over-leveraged debt to income ratios, high interest rates, making long term credit purchases based on good earning power that later disappears. Salespeople are happy to sell goods beyond the buyer’s means.
A rising tide lifts all ships, yet still water may rot untended hulls, and sink them to the bottom. Bankruptcy saves lives, marriages, and ideally reintegrates discharged debtors into productive and mental equilibrium. The major challenge to this aspiration is our cyclical economy of peaks and valleys.
There is much abuse of the ordinary working woman and man, and frankly little abuse of the bankruptcy system, which like unemployment compensation is a vital safety net, to protect the debtor’s labor and emotional integrity.
© Oliver B. Pollak
Oliver B. Pollak earned his doctorate in History at UCLA and law degree from Creighton University Law School. He has written over ten books and hundreds of scholarly and popular articles.